Temporary Insanity

A week and a half ago, Kevin Meyer wrote a piece called "Are Employees Really Your Most Important Asset?" in which he expanded on some of the sharper points I raised in Rebirth of American Industry, largely revolving around the arbitrary decision made many years ago to classify production workers as variable costs, and managers as fixed costs. That purely artificial assignment of job security to one group of employees, while leaving another group’s security to the whims of the market, is behind a great deal of our manufacturing woes, yet it has been accepted as some sort of a law of physics or nature – just the way things are and the way things have to be. To talk to a group of accountants, or to sit in on a typical business school lecture, one would think that Moses came down from the Mount with the Ten Commandments written on one side of the tablets, and GAAP (Generally Accepted Accounting Principles) etched into the other side. Alfred Sloan and his buddies dictated how companies were to be run in 1923 and, we are hell bent on doing things the way Alfred, and his partner in crime Donaldson Brown, said we must, no matter what.

My point is not to beat that dead horse any further, however. Kevin flogged it unmercifully. I want to direct your attention to a comment Costikyan Jarvis made to Kevin’s post, and follow up on it. Costikyan pointed out the rise in the temporary labor industry, which just happens to have followed the onslaught of the lean Japanese manufacturers in the early 1980’s. The use of temporary workers for anything other than temporary needs is a tribute to just how convoluted accounting driven management has become. To a production managers the classification of people as company employees or temps is a distinction without a difference. They are both real, flesh and blood human beings, with a similar set of human capabilities, motivations, idiosyncrasies and capabilities. But the accounting minds were not satisfied with having people living on the thin ice of having their paychecks categorized as variable costs – so a way to have production people with even less job security than that was created – the temp. Now production managers can be given workers with even less ownership in the outcome of their efforts, making good manufacturing even less probable.

Of course, most temps are not truly temporary, at all. What companies have really done is found a way to outsource Human Resources. One big Midwestern company with which I am quite familiar, has more production workers on the local temp agency payroll than their own. The temp agency does all of the interviewing and screening, then puts them to work. Most of the temps have been working there for years, but have no prospect of ever being offered full time employment. In a recent article about General Motors, the plight of similar ‘temporary employees’ who had been working for GM for over 6 years was discussed. These people are no more temporary or permanent than any other production workers – they are simply easier and cheaper to boot out into the street when the need arises.

What makes the use of temps particularly disingenuous is that they are oftentimes used simply to rig the numbers. Whether it is a plant manager conning headquarters, the division management conning the parent company, or the senior execs conning Wall Street, companies will lay off thousands of employees, then turn around and hire many of them back the next day at a lower pay rate and with fewer benefits through temporary agencies. By such slight of hand, they have deftly moved paychecks from the direct labor column to the morass of overhead. The clever managers behind such nonsense then take credit for reducing headcount and payroll expenses, and collect their bonuses. I would very much like to hope that there is a heaven and that St. Peter sits at its pearly gates, waiting to call the masterminds of these shenanigans to task. Complying with the letter of the the commandment to tell the truth, while stomping all over the spirit of it, and shamelessly abusing the production folks involved in the process, is hardly what St Peter’s boss had in mind when he blessed these folks with capable minds and access to the higher education programs that granted them their MBAs.

The contrast to the GM approach of keeping headcount down by ‘temporarily’ hiring a guy for 6 years, the laying him off without notice is Fortune’s list of the best companies to work for. These companies not only do not waste the skills of MBAs and CPAs on finding creative ways to treat employees with even less respect than classifying them as variable costs, they actually value their employees. It is too bad, however, that none – as in zero, zip, nada – of the big, old publicly traded manufacturing companies made the list (unless you count Texas Instruments who is big, public and relatively old, but has outsourced just about all of its manufacturing – at least in this country). These other companies are not direct descendants of Alfred Sloan – just shirttail cousins – so they are not quite as fixated on managing by his principles as the big manufacturers.

There are those who will be quick to point out that Toyota in Japan uses quite a few temps. I will be just as quick to point out that Toyota in the U.S. does not. And in this instance, the use of temporary workers for anything other than temporary work is so clearly derogatory, and so clearly counter to the core principles of lean manufacturing, I could care less what Toyota is Japan is doing. If they are, in fact, using temps in the manner the big American manufacturers are using them, then shame on Toyota. They oughta know better. Everyone oughta know better.

Comments

As usual, you don’t pull the punches, and write like you’re picking a fight…keep up the good work. I understand your frustration with this issue.

I’ve also witnessed in epidemic proportions the inappropriate use of temporary workers to fill permanent jobs on a rotating basis. Executives point out to me the obvious savings in payroll. I point out to them the less obvious, but much greater impact to morale, productivity, quality, and safety.

The irony is that if management really looked at it, they would realize that this practice usually costs them more than they save.